West Allis - The school district and four other districts involved in a lawsuit to get back millions of dollars in investments gone bad are awaiting federal action that is the linchpin to the settlement of their lawsuit.
The West Allis-West Milwaukee School Board on Monday approved an agreement that would settle the lawsuit that it and the four other districts brought against the Royal Bank of Canada and the districts’ banking adviser Stifel, Nicolaus & Co. Inc. The lawsuit alleged that the defendants sold them investments that were much more risky than they were led to believe. The investments became worthless in the 2008 recession.
Stifel and the bank argue that the districts were given full details.
The $200 million in investments were complex financial instruments known as collateralized debt obligations, or CDOs, that the districts bought in 2006.
The five districts -- West Allis, Kenosha, Kimberly Area, Waukesha and Whitefish Bay -- were to have all signed the proposed settlement as of Tuesday night, said C.J. Krawchek, the districts' attorney.
School board members were advised by their attorney to have no comment until the settlement is final.
The districts' settlement and the separate but related federal regulatory action that is critical to the districts' agreement going through still need approvals. They are awaiting signatures by Stifel, the Royal Bank of Canada and by the federal Securities and Exchange Commission, which brought the regulatory action.
However, the SEC now has an agreement in principle with Stifel, hammered out by SEC attorneys in the enforcement division.
"Now it needs to be approved at the highest level of the SEC," Krawchek said. The SEC is expected to meet in early November and Krawchek said he hopes the Stifel agreement will be on that agenda.
"If it's modified or fails, it could potentially scuttle our deal," he said. Even so, he said, "I'm optimistic the deal will be consummated."
The districts and the SEC both sued Stifel and the Royal Bank of Canada in separate actions over the sale of the CDOs. While the districts settled with Stifel but not with the bank, the SEC settled with the bank but not with Stifel.
If the lawsuit is finally settled, nearly all the money going to the districts would come from the Royal Bank of Canada, Krawchek said. The districts earlier reached a partial settlement with Stifel that involved providing money to the districts but also setting aside more for an eventual final settlement, which is now pending, Kawchek said.